Introduction to Selling Term Life Insurance
If you’re considering selling your life insurance policy, the type of policy—term or permanent—can significantly impact its value in a life settlement. This distinction can significantly affect how much your policy might be worth in a life settlement.
What Is a Term Life Insurance Policy?
Covers you for a fixed time (usually 10, 20, or 30 years).
Expires when the term ends unless converted to a permanent policy.
Often has lower premiums and no cash value.
No payout if the insured outlives the term.
Because of this, investors are generally less interested in term policies—unless they can be converted into permanent ones. Why? The death benefit isn’t guaranteed long-term, and there’s no investment value.
What Makes Permanent Life Insurance More Valuable?
A permanent life insurance policy, in contrast, offers lifetime coverage, as long as the premiums are paid. These policies usually come with higher premiums, but they also build cash value over time. That value can be used to pay future premiums, borrowed against, or withdrawn under certain conditions.
Examples include whole life, universal life, and variable life policies.
Investors often prefer these because of their guaranteed death benefits and the ability to grow in value, which makes them a more valuable financial asset.
Key Characteristics of Term Life Insurance
Fixed Duration
The policy is active for a pre-defined term, after which coverage expires unless renewed or converted.Lower Premiums
Term life is more affordable than permanent life insurance, making it popular for young families and working professionals.No Accumulated Value
Unlike whole or universal life insurance, term policies don’t accumulate cash value over time.Convertible Options
Many term policies offer a conversion privilege, allowing the policyholder to switch to permanent life insurance (whole or universal life) without a medical exam—but only for a limited time.
Why Sell a Term Life Insurance Policy?
Common Reasons Include:
Premiums have become too expensive.
You no longer need the coverage due to lifestyle changes (e.g., children are grown, spouse is financially independent).
The policy was purchased for business reasons (key person or buy-sell coverage) and is now obsolete.
You want to extract value from an expiring policy before it lapses or is canceled.
Who Can Sell a Term Life Insurance Policy?
You may qualify to sell your term policy if:
You are aged 65 or older, or younger with a serious health condition.
Your policy has a face value of $100,000 or more.
The term policy is still within its conversion period.
The policy has been in force for at least two years (outside the contestability period).
You no longer need the coverage or can’t afford the premiums.
These conditions apply whether you’re an individual policyholder or a business owner holding key person or buy-sell agreement coverage.
How Can You Sell Term Life Insurance?
Selling a term life insurance policy is generally more challenging than selling a permanent life insurance policy because term policies usually don’t build cash value and they expire after a set period (like 10, 20, or 30 years). This makes them less attractive to investors since there’s no guaranteed payout if the insured outlives the term.
However, there are two ways you can potentially sell a term life insurance policy:
1. Convert Your Term Policy to a Permanent Policy
Many term policies come with a conversion option that lets you switch to a permanent life insurance plan—such as whole life or universal life—without needing a medical exam. Once converted, the policy gains cash value and becomes more appealing to investors. At this point, you can sell the converted permanent policy through a life settlement, potentially unlocking significant value.
2. Life Expectancy Shorter Than Policy Term
If your life expectancy is shorter than the remaining term on your policy, investors might be interested in buying your term policy directly. This is because the payout is likely within the coverage period, making it a viable investment. However, this situation is less common and typically requires thorough medical underwriting to confirm life expectancy.
How Conversion of Term Life Insurance Policy Works
While you can’t sell most term policies as-is, many are eligible for sale if they can be converted to permanent coverage. This opens the door for life settlement opportunities.
1. Conversion Is the Key
The critical factor in selling a term policy is whether it is convertible.
A convertible term life policy can be transformed into a permanent policy that never expires as long as premiums are paid.
Buyers are only interested in policies that provide guaranteed future death benefits—which permanent policies do.
If your term policy is not convertible, it generally cannot be sold.
2. Act Before the Conversion Deadline
Most term policies have a conversion deadline—often by age 65 or within the first 10–15 years of the policy. If you wait too long, the window may close, and the opportunity to sell it disappears.
